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How Does a Payday Loan Work?

Initial payday loan: The borrower writes a post-dated check for the payday loan amount plus any fees. For example, to borrow $500 for two weeks, the borrower writes a $575 check.

The loan rollover: The borrower assumes they will have enough money in their bank account in two weeks to pay off the payday loan. However, 90% of our profit is generated from borrowers who are not able to pay off the loan and are forced into a debt trap1.

The debt trap: The borrower takes out an additional payday loan to pay off the old loan. The average borrower takes out 9 payday loans per year2. On a $500 loan with $75 in fees every two weeks, this is $675 in profit at a lucrative 390% APR.

Profit from lack of financial knowledge: PLA members know that 40% of borrowers believe their payday loan rates are less than 30% APR3. Join the PLA to learn how to comply with the Truth in Lending Act without risking an increase in the financial knowledge of your customers.